related to licences of intellectual property (the royalty recognition constraint)
when there are other promised goods or services in the contract (see 9.5 below);
and
• added two practical expedients to the transition requirements of IFRS 15 for:
(a) completed contracts under the full retrospective transition method; and
(b) contract modifications at transition (see 2.3 below).
The FASB also deferred the effective date of its standard by one year for US GAAP
public and non-public entities, as defined, which kept the standards’ effective dates
converged under IFRS and US GAAP.
Like the IASB, the FASB also amended its revenue standard to address principal versus
agent considerations, identifying performance obligations, licences of intellectual
property and certain practical expedients on transition.4 The FASB’s amendments for
1980 Chapter 28
principal versus agent considerations and clarifying when a promised good or service is
separately identifiable when identifying performance obligations were converged with
those of the IASB discussed above. However, the FASB’s other amendments were not
the same as those of the IASB. The FASB also issued amendments, which the IASB did
not, relating to immaterial goods or services in a contract, accounting for shipping and
handling, collectability, non-cash consideration, the presentation of sales and other
similar taxes, the measurement and recognition of gains and losses on the sale of non-
financial assets (e.g. property, plant and equipment) and other technical corrections. We
highlight the significant differences between the IASB’s final standard and the FASB’s
final standard throughout this chapter.
2.2 Effective
date
IFRS 15 became effective for annual reporting periods beginning on or after
1 January 2018. Early adoption was permitted, provided that fact was disclosed.
[IFRS 15.C1].
Figure 28.1 below illustrates the effective date of IFRS 15 for entities with differing year-
ends and assumes that entities report results twice a year (annual and half-year).
Figure 28.1:
Illustrative effective dates for IFRS 15
Year-end
Mandatory adoption
Early adoption
31 December
1 January 2018 adoption date.
Possible adoption dates include, but are
Present for the first time in 30 June 2018 not limited to:
interim financial statements and in
•
1 January 2014 adoption date.
31
December 2018 annual financial
Present for the first time in
statements.
30 June 2014
interim
financial
statements and in
31 December 2014 annual financial
statements.
•
1 January 2015 adoption date.
Present for the first time in
30 June 2015
interim
financial
statements and in
31 December 2015 annual financial
statements.
•
1 January 2016 adoption date.
Present for the first time in
30 June 2016
interim
financial
statements and in 31
December
2016 annual financial statements.
•
1 January 2017 adoption date.
Present for the first time in
30 June 2017
interim
financial
statements or 31 December 2017
annual financial statements.
Revenue
1981
30 June
1 July 2018 adoption date.
Possible adoption dates include, but are
Present for the first time in not limited to:
31 December 2018
interim
financial
•
1 July 2014 adoption date. Present
statements and in 30 June 2019 annual
for the first time in
financial statements.
31 December 2014 interim financial
statements and in 30
June 2015
annual financial statements.
•
1 July 2015 adoption date. Present
for the first time in
31 December 2015 interim financial
statements and in 30
June 2016
annual financial statements.
•
1 July 2016 adoption date. Present
for the first time in
31 December 2016 interim financial
statements and in 30
June 2017
annual financial statements.
•
1 July 2017 adoption date. Present
for the first time in
31 December 2017 interim financial
statements and in 30
June 2018
annual financial statements.
The FASB’s standard became effective for public entities, as defined,5 for fiscal years
beginning after 15 December 2017 and interim periods therein. Non-public entities (i.e. an
entity that does not meet the definition of a public entity in the FASB’s standard) are
required to adopt the standard for fiscal years beginning after 15 December 2018 and
interim periods within fiscal years beginning after 15 December 2019. That is, non-public
entities are not required to apply the standard in interim periods in the year of adoption.
US GAAP public and non-public entities were permitted to adopt the standard as early
as the original public entity effective date.
2.3 Transition
methods
IFRS 15 requires retrospective application. However, the Board decided to allow either
‘full retrospective’ adoption in which the standard is applied to all of the periods presented
or a ‘modified retrospective’ adoption (see 2.3.3 and 2.3.4 below, respectively).
The following are the dates relevant to transition:
• The date of initial application – the start of the reporting period in which an entity
first applies IFRS 15. [IFRS 15.C2(a)]. This date of initial application does not change,
regardless of the transition method that is applied. Examples of dates of initial
application for different year-ends include:
Year ending
Date of initial application
31 December 2018
1 January 2018
30 June 2019
1 July 2018
• The beginning of the earliest period presented – the start of the earliest reporting
period presented within an entity’s financial statements for the reporting period in
1982 Chapter 28
which the entity first applies IFRS 15. This is relevant for entities using the full
retrospective adoption method. For example:
Beginning of the earliest period presented
Year ending
(one comparative period)
(two comparative periods)
31 December 2018
1 January 2017
1 January 2016
30 June 2019
1 July 2017
1 July 2016
2.3.1
Definition of a completed contract
IFRS 15 defines a completed contract as a contract in which the entity has fully
transferred all of the identified goods or serv
ices before the date of initial application.
[IFRS 15.C2(b)]. Depending on the manner an entity elects to transition to IFRS 15, an entity
may not need to apply IFRS 15 to contracts if they have completed performance before
the date of initial application, even if they have not yet received the consideration and
that consideration is still subject to variability.
The IASB noted in the Basis for Conclusions that ‘transferred all of the goods or services’
is not meant to imply that an entity would apply the ‘transfer of control’ notion in IFRS 15
to goods or services that have been identified in accordance with legacy IFRS. Rather it is
performance in accordance with legacy requirements (i.e. IAS 11, IAS 18 and related
Interpretations). [IFRS 15.BC441]. ‘Consequently, in many situations the term “transferred”
would mean “delivered” within the context of contracts for the sale of goods and
“performed” within the context of contracts for rendering services and construction
contracts. In some situations, the entity would use judgement when determining whether
it has transferred goods or services to the customer.’ [IFRS 15.BC445D].
Consider the following examples:
• contract is completed – a retailer sold products to a customer on 31 December
2017, with immediate delivery. The customer had a poor credit history. Therefore,
the retailer required the customer to pay half of the consideration upfront and half
within 60 days. In accordance with IAS 18, the retailer recognised half of the
consideration at the time of the sale. However, the retailer concluded it was not
probable that it would be able to collect the remainder and deferred recognition
of this amount. Because the goods were delivered prior to the date of initial
application of IFRS 15 (e.g. 1 January 2018) and collectability concerns were only
the reason for delaying recognition of revenue under IAS 18, the contract is
considered completed under the new standard (see 2.3.2.E below for further
discussion on collectability); or
• contract is not completed – an entity entered into a contract to provide a service
and loyalty points to a customer on 31 January 2017. In accordance with IFRIC 13,
the entity deferred a portion of the total contract consideration for the loyalty
points and deferred revenue recognition until the points were exercised on
15 January 2018. The entity completed the required service within six months and
recognised revenue related to the service over that period in accordance with
IAS 18. As at the date of initial application of the new standard (e.g. 1 January 2018),
the entity had not yet performed in relation to the loyalty points. As a result, the
contract was not considered completed under the new standard (see 2.3.2.G below
for further discussion on loyalty points).
Revenue
1983
As discussed above, determining which contracts are completed at transition may
require significant judgement, particularly if legacy IFRS did not provide detailed
requirements that indicated when goods had been delivered or services performed
(e.g. licences of intellectual property).
Entities should not consider elements of a contract that did not result in recognition of
revenue under legacy IFRS (e.g. warranty provisions) when assessing whether a contract
is complete.
The definition of a ‘completed contract’ is not converged between IFRS and US GAAP.
A completed contract under ASC 606 is defined as one for which all (or substantially all)
of the revenue was recognised in accordance legacy US GAAP requirements that
applied at the date of initial application.6
The different definitions could lead to entities having a different population of contracts
to transition to the revenue standards under IFRS and US GAAP, respectively. However,
the Board noted in the Basis for Conclusions that an entity could avoid the
consequences of these different definitions by choosing to apply IFRS
15
retrospectively to all contracts, including completed contracts. [IFRS 15.BC445I].
2.3.2
Implementation questions on definition of completed contract
2.3.2.A
Elements in a contract to be considered
When determining whether a contract meets the definition of a completed contract, an
entity must consider all of the elements (or components) in a contract that give rise to
revenue in the scope of legacy IFRS. It should not consider the elements of a contract
that do not result in recognition of revenue (e.g. warranty provisions accounted for in
accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets)
when assessing whether a contract is complete.
For example, under legacy IFRS, an entity may have accounted for a financing
component (i.e. separating the interest income or expense from the revenue). Doing so
effectively splits the contract into a revenue component and a financing component. In
our view, the financing component would not be considered in determining whether
the goods or services have transferred to the customer (i.e. it would not affect the
assessment of whether the contract meets the definition of a completed contract).
In addition, income elements that are not within the scope of IFRS 15 need not be
considered. For example, IAS 18 applied to dividends and provided guidance on the
recognition of interest and fees integral to the issuance of a financial instrument. None
of these elements would be considered when determining whether a contract meets the
definition of a completed contract for transition to IFRS 15. This is because:
• dividends are not within the scope of IFRS 15 (see Chapter 46 at 2); [IFRS 9.5.7.1A,
IFRS.9.5.7.6]
• the guidance that was previously included in the illustrative examples to IAS 18 for
fees integral to the issuance of a financial instrument is now included within IFRS 9
(see Chapter 46 at 3.1); [IFRS 9.B5.4.1-B5.4.3] or
• interest income will continue to be accounted for in accordance with the effective
interest method as set out in IFRS 9 (see Chapter 46 at 3). [IFRS 9 Appendix A, IFRS 9.5.4.1,
IFRS 9.B5.4.1-B5.4.7].
1984 Chapter 28
2.3.2.B
Identification of a contract under legacy IFRS
When determining whether a contract is completed, an entity considers the
requirements of legacy IFRS and not IFRS 15. In order to determine whether a contract
is completed, an entity needs to determine the boundaries of a contract, including the
term of the contract, whether it was combined with other contracts, whether it was
modified, etc. That is, an entity must identify what is the contract in order to assess if it
meets the definition of a completed contract.
Considering the requirements of IFRS 15 could lead to different outcomes from legacy
IFRS. IFRS 15 provides detailed requirements to assist entities in identifying a contract,
including determining the contract duration. These requirements are more detailed than
legacy IFRS and could result in outcomes that are different under IFRS 15 (e.g. an entity
may conclude a contract is of a shorter duration than the stated contractual term in
certain circumstances under IFRS 15. See 4.2 below for further discussion).
&nb
sp; While legacy IFRS did not provide detailed requirements for identifying the contract,
accounting policies and an entity’s past practice may be informative in identifying the
contract, including determining: (a) what the entity considered the contract to be
(e.g. master supply agreement or individual purchase orders); and (b) the contract duration
(i.e. the stated contractual term or a shorter period). Consider the following examples.
Example 28.1: Definition of completed contract: contract duration
Scenario 1
On 30 June 2016, Entity A entered into a contract with a customer to provide services for 24 months. The
customer was required to pay a fixed monthly fee of £150, which remained constant during the contract term
of 24 months, regardless of the time needed to provide the services or the actual usage from the customer
each day. The customer could cancel the contract at any time without penalty by giving Entity A one month’s
notice. Entity A had not received any cancellation notice up to 1 January 2017 and, based on past experience,
Entity A did not expect customers to cancel within the first year. For this contract, Entity A concluded that
the contract duration under legacy IFRS was the stated contractual term of 24 months.
Entity A’s accounting policy for these types of contracts under IAS 18 stated that revenues from providing
monthly services to customers were recognised over the service period, on a monthly basis. While not
explicitly stated in its accounting policy, Entity A had typically treated the stated contractual term as the
duration of the contract (unless the customer cancelled or the contract was modified), being the period over
which the contractual rights and obligations were enforceable.
Assume that Entity A adopts IFRS 15 on 1 January 2018 using the full retrospective method. Entity A also
uses the practical expedient in paragraph C5(a)(ii) of IFRS 15 not to restate contracts that meet the definition
of a completed contract as defined in paragraph C2(b) of IFRS 15 at the beginning of the earliest period
presented (i.e. 1 January 2017; Entity A presents one comparative period only).
Under IFRS 15, Entity A is likely to conclude that the contract is a month-to-month contract. However, when
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